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The stock market continued its volatile run Aug. 16, with the Dow Jones industrials plunging more than 300 points after problems at mortgage lender Countrywide Financial (NYSE: CFC - News ) confirmed investors' fears that the worst of the credit crunch isn't over yet. And just as suddenly, major indexes zoomed back in the last hour of trading to finish the day little changed. Amid the scary market action, what's an individual investor to do? BusinessWeek Associate Editor Emily Thornton asked that very question of John Bogle, founder of the Vanguard Group and a pioneer of index investing. The fund-industry veteran, who recently wrote The Little Book of Common Sense Investing, recommends at least two pieces of sage advice: First, be sure to keep an adequate portion of your portfolio in bonds. Second, try to remain calm: Bogle says it's possible the stock market could slide by another 15-20%. Edited excerpts from their conversation follow: We're seeing such problemati...

A few concise answers to your questions: As far as your money market funds, they all invest in different ways. You should call the manager and find out if they own any paper tied to subprime lending. So far, I have not seen any problems but as you know, ghosts can come out of the closet. The HOUSING business is in the 2nd or maybe 3rd inning of its downtrend. I find it amazing that calls for a bottom continue. Who do these people think they are kidding? It does not have to end in a crash. My thinking has been that we would have a slow bleed over time as prices have to come down in order for inventories to come down. As far as Miami, forget it. I will be looking to buy a few condos for $7,900 in a few years as the maniacs are putting up another 20,000 units in the middle of a condo depression in South Florida. The FED did what they are NOT supposed to do...their move was purely to lift the market. How do I know? They made the move on option's expiration day...forcing the ...

Paul Katzeff The sell-off hurts. The S&P 500 was off about 7% from its July 19 intraday high through Monday's close. That leaves the big-cap index up a scant 1.92% for the entire year. So we're in a wrenching correction. The sparks for this conflagration are the credit crunch and fallout from the subprime meltdown. Many investors have been wondering if they should bail out of the market -- before their accounts dwindle further. Should they go to cash? The question is especially urgent for people near retirement. The trouble with exiting is that the medicine is often worse than the ailment. People don't get back into the market in time. As a result, they miss the start of the next rally. That means they lose a big chunk of gains. "If you're getting hurt by this downturn, it means you weren't able to foresee the sell-off," said Stuart Ritter, a financial planner at T. Rowe Price. "What makes you think you'd be any better at foreseeing the start...

By Gregg Wolper The past month's stock-market gyrations seem to have everyone on edge. If you've managed to remain calm, congratulations--that's the way to succeed as a long-term investor. If you've been shaken, that's understandable, too. It's tough not to be, given the drumbeat of dramatic news reports about collapsing mortgage firms and 200-point drops in the Dow. Even more unnerving than the stock market's slide itself is the notion that the recent turmoil has taken an unprecedented and completely unexpected turn. From several fronts we've heard that the markets are behaving in strange, wild ways. The implication: All the assumptions previously underpinning standard investment theory have gone up in smoke. For example, the manager of a long-short fund, which is designed to handle all sorts of market conditions, explained in The Wall Street Journal his fund's unimpressive showing by saying recent events were "an anomaly." In a Financial ...

Marie Beerens Most portfolio management theories claim that diversifying your portfolio is important to limit losses. But a portfolio is hard to manage when it holds more than a few stocks. "The more you diversify, the less you know about any one area," IBD Chairman and Founder William O'Neil wrote in his book, "How to Make Money in Stocks." "The best results are usually achieved through concentration, by putting your eggs in a few baskets you know well and watch very carefully," he said. If you have too much on your plate, you may miss warning signs on some stocks that may have peaked or are giving back profits. So, what's a reasonable number of stocks to own in one's portfolio? If you have $10,000 to invest, two or three will do the trick. With $25,000, you can expand that to three or four. Even if you have $100,000 or more, five or six stocks should be sufficient. If you see a stock that you think has strong potential, consider getting rid ...

By David Bogoslaw For most equity investors, the wild market volatility of the past few weeks has been cause for gritted teeth and palpitating hearts. But a few who have become active in online trading communities took some solace in the fact that they at least had found a place where they can see how other investors are riding out the storm. "Just the fact that I'm seeing people in there buying calls (an equity option that bets on rising prices) and common stock has definitely given me confidence that the individual is buying on the dip, which is basically what I do, and it's always good to get some reassurance that other people are doing the same thing," says Jim Collins, who opened an account at TradeKing.com in January. Like many other parts of the Internet, online trading sites are more and more turning into collaborative experiences. Only one of the better-established discount online brokers, E*Trade Financial (NasdaqGS: ETFC - News ), has made a foray into co...

Ben Stein Economist, writer, lawyer, and actor No one is too stupid to make money in the stock market. But there are many who are too smart to make money. To make money, at least in the postwar world, all you have to do is buy the broad indexes domestically--both in the emerging world and in the developed world--and, to throw in a little certainty about your old age, maybe buy some annuities. To lose money, pretend you're really, really clever, and that by reading financial journalism and watching CNBC, you can outguess the market day by day. Along with that, you must have absolutely no sense of proportion about money and the world at large. For example, right now we are stewing over what everyone calls "the subprime mess" and going crazy, mourning all day and into the night--falling over ourselves to get all of the misery right, to paraphrase Evita. I'm writing this on Aug. 13, 2007, and in the past four or five weeks, the markets of the U.S. have lost some 7% of th...

Is the worst over? Fortune's Peter Gumbel offers a 10-point guide to understanding two harrowing weeks - and what's likely to happen next. PARIS (Fortune) -- Relax! There's really no need to panic! That's the soothing message being put out this week by key players in financial markets after two harrowing weeks in which credit markets in Europe all but dried up, prompting massive injections of funds into the system by the European Central Bank, the U.S. Federal Reserve and the Bank of Japan. Overnight borrowing rates have come back down after spiking wildly and stock and bond markets have been bouncing back around the world. The European Central Bank, which continued to inject funds into the market on Tuesday, albeit less than one-tenth the amount at the peak of the crisis last week, says that money-market conditions are "normalizing." And Tuen Draaisma, Morgan Stanley's chief European equity strategist, for one, recommended in a note to clients that they s...

by Andrea Coombes Mortgage lenders going bankrupt, hedge funds evaporating, the stock market gyrating wildly: What does it all mean for you and me? There's no denying that the financial markets are on edge and volatile, and some companies are in difficult straits, triggered in large part by rising foreclosures in the subprime market and the effect on investments tied to those mortgage loans . But the degree to which the current situation affects individual Americans depends a lot on what you've got planned in coming months. If you'd like to tap into the mortgage market -- buy a house, refinance your mortgage , take a home equity line of credit -- the recent turmoil will directly affect what kind of loan you can get and how much it will cost. For many borrowers now, "it's more difficult to get a mortgage loan," said Mark Zandi, chief economist with Moody's Economy.com. "You have to have a better credit score , you have to have more eq...

FRANKFURT (AFP) - - The US home loan crisis looks set to continue gripping world markets but the effect could be diluted because the risk is spread among investors around the globe, analysts say. The European Central Bank pumped 155.85 billion euros (212.98 billion dollars) into the eurozone banking market on Thursday and Friday as central banks across the globe rushed to ward off a global credit crunch linked to the US subprime loan market. A crunch would make it harder and more expensive for businesses and consumers to get loans and cash. The potential for instability to spread fast when markets re-open on Monday is high, analysts agreed, but most thought the main bourses would weather the storm. Gilles Moec, senior economist at Bank of America, said: "One of the big issues is that no-one has any real clue of the amount of subprime loans which have been purchased by foreigners. "The big question is what is the overall amount and this is bad for the markets because if there ...

LONDON (Reuters) -- Big-money institutional investors have turned more risk averse than at any time since August last year, taking positions they typically do not reverse quickly, State Street data showed Friday. The U.S. financial services firm said its clients, who keep some $13.04 trillion with it as a custodian, have moved into what it called a "safety first" regime. This is characterized by moving from emerging to developed market equities, embracing bonds and unwinding currency "carry" trades. Institutional investors tend to take a longer-term view of markets than other investors, so shifts in their strategy can have a significant impact on a market's recovery. The firm said that since September last year investors had been taking positions reflective either of abundant liquidity or leverage opportunities. "A quick move back to risk-seeking is unlikely given ... previous history ... and the backdrop of markets," State Street said in a note. Speci...

By Doug Tucker The ETF, or Exchange Traded Fund, has grown from consisting of a handful of broad-based index products, to now consisting of hundreds of products representing almost every conceivable investment theme or idea. Volume has expanded on many of the issues, making them some of the most liquid trading instruments around. It seems clear that the debate between choosing a traditional mutual fund or an ETF is clearly in the corner of the ETF. ETF fees are much lower than mutual funds, and even factoring in the small brokerage commission applied to an EFT, the savings in fees will make up for the commission many times over. And, some brokerage firms that deal in no load mutual funds will charge a commission to get out if not held a certain length of time. There is no restriction on the holding period of an ETF. And with and ETF you won't get hit with capital gains distributions, so, with the exception of dividends, you get to control when you pay capital gains, short term or l...

By Jim Cramer RealMoney.com Columnist It's all in the marks. Unless you have run a hedge fund, you have no idea what that means. So I will explain it to the uninitiated. When you run a hedge fund, you are always seeking capital. You can seek money directly from institutions or individuals, or you can do the easiest thing and seek money from those who are offering it: "fund of funds" managers who, specifically, look for managers to place other people's monies. This cohort of investors had just gotten started in about my seventh year as a hedge fund manager, and they were always plying me with capital. I tried it for a while, but the ones I had, and they were substantial, demanded too much of my time and, I thought, forced me to make shorter-term decisions than I liked. I valued my independence too much. So I sent their money back. Lots of people thought that was foolish. Lots wanted to grow their funds gigantically because they figured that was the way to get ric...

NEW YORK (Reuters) - The turmoil sweeping the U.S. subprime mortgage market is starting to resemble some of the biggest financial crises of the past 100 years as its fallout infects credit conditions worldwide. While most analysts say it's too soon to hit the panic button, parallels to past crises are starting to fall in place: a domestic credit crunch, contagion to international markets and more volatility, followed by bank intervention. On Thursday, the European Central Bank pumped a record 94.8 billion euros ($130.6 billion) into Europe's money markets, citing U.S. subprime mortgage problems. The Bank of Canada later injected C$1.455 billion ($1.37 billion) to help with liquidity shortfalls, while the U.S. Treasury said it "remains vigilant."The subprime situation has inspired comparisons to the collapse of Long-Term Capital Management and the Russian sovereign loan default, both in 1998, as well as to the U.S. savings and loans crisis of the 1980's. Some have...

By Paul Krugman, The New York Times. Posted August 10, 2007. In September 1998, the collapse of Long Term Capital Management, a giant hedge fund, led to a meltdown in the financial markets similar, in some ways, to what's happening now. During the crisis in '98, I attended a closed-door briefing given by a senior Federal Reserve official, who laid out the grim state of the markets. "What can we do about it?" asked one participant. "Pray," replied the Fed official. Our prayers were answered. The Fed coordinated a rescue for L.T.C.M., while Robert Rubin, the Treasury secretary at the time, and Alan Greenspan, who was the Fed chairman, assured investors that everything would be all right. And the panic subsided. Yesterday, President Bush, showing off his M.B.A. vocabulary, similarly tried to reassure the markets. But Mr. Bush is, let's say, a bit lacking in credibility. On the other hand, it's not clear that anyone could do the trick: right now we'r...